The hype about cryptocurrency is because of the high value of cryptocurrencies and crypto assets. However, that does not come without the most significant disadvantage: the probability of the prices going down. Many factors can affect the fluctuating nature of the value of cryptocurrency. Still, the leading factor is demand, which translates to a higher price and vice versa. When it comes to cryptocurrency, the different factors which affect the price fluctuation are discussed below.
Production cost
One may wonder where cryptocurrencies come from, how they came to be, and what makes them so expensive. The answer can be based on understanding the mining process, which uses particular hardware or powerful servers to verify the transactions or produce new tokens for an existing blockchain network or a new network. After mining, the mined tokens are added to a network, and the miners are awarded network-free and virtual tickets for these efforts. The activities of the miners allow for continued working of the cryptocurrency, and any increase in the cost of mining may increase the price of cryptocurrency because miners spend their resources on mining new cryptocurrency. Then the rewards should be big enough to cover the expenses, which may lead to a profit for the miners. The activities for miners and the production cost are not uniform across all cryptos, which demands conclusive research before committing to the mining journey.
Node count
Node counts are essential considerations in all crypto trades. The latter is because they show the number of active wallets in the same network information, which is readily available on the homepage or by performing a google search. The main question is how the node count affects the value of cryptocurrency. First, it shows the strength of the community in a crypto network. High node counts translate to solid communities, leading to an increased chance of a currency overcoming a crisis. Secondly, a high node count can show the decentralization and the decentralization of a network important information in understanding the basic operations when trading with crypto. Node count can also be used to check the pricing of cryptocurrency because the node count, together with the total market capitalization, can be compared with more popular cryptocurrencies to identify potential for investment and the position of a currency to identify crucial aspects like trading and network infrastructure difference.
Crypto trade exchanges
Crypto trade exchanges also affect the value of cryptocurrency in that the availability of tokens allows for a more significant number of exchanges. A large number of crypto exchanges also open up opportunities for increased buying and use of specific crypto tokens, and an investment in two or more businesses opens up a chance to swap crypto tokens which are accompanied by a fee for each swap which raises the incremental investment cost hence altering the value of cryptocurrencies. Trading platforms like news spy provide essential insights about the importance of crypto trade exchanges which open up opportunities for investment and trading.
Government regulation
Government regulation is another crucial factor that influences the value of cryptocurrencies. The discussion on government regulation is based on certain governments not appreciating the decentralization and unregulated nature of cryptocurrencies; hence look for a way to be players by attempting to control the crypto market and trading with cryptocurrency. The latter is done by imposing taxes for any crypto conversion to cash out the gained profit or coins in the user accounts. Although the taxes may apply to specific tokens, investors and traders can use them without a tax obligation to cash out their coins. In some countries that have not invented creative ways of regulating or imposing taxes on cryptocurrencies, the most considered option is to completely ban any trading or investing using cryptocurrency, which hurts the price and value of bitcoin, especially since the number of crypto users is high in the said country. In some countries like Japan, more inventive strategies have been implemented on the national level, allowing for the setting of new and updated cryptocurrencies to open up opportunities for investment and the use of virtual tokens.
Scarcity
Cryptocurrency value operates based on supply and demand. When there is a limited supply of specific cryptocurrency or in-demand coins, the prices go up because of the availability of fewer coins to invest in. In instances where there is a limited number of cryptocurrency or crypto coins in circulation and the remaining in a reservation is released for trade, the value of the cryptocurrency may reduce as more cryptocurrency becomes available for buying. In some instances, while using specific cryptocurrencies, the significant holders may engage in ‘burning’ projects, including sending mined or excess cryptocurrency to unrecoverable addresses in a blockchain to control the supply.
